Tax Tips for New Parents: How to Maximize Your Savings
Congratulations! Bringing a child into the world is a joyous and life-changing event. However, it also can come with a significant financial burden. New parents can take advantage of various tax breaks to alleviate some of the financial strain. Let’s explore essential tax tips that can help new parents optimize their savings and take advantage of available credits and deductions.
Obtain a Social Security or Individual Tax Identification Number:
Parents must obtain a Social Security number, Adoption Tax Identification Number, or Individual Tax Identification Number for their child or dependent to claim tax breaks. These identification numbers are necessary for the IRS to verify eligibility for the credits and deductions claimed on the tax return.
Welcoming a new family member can significantly impact tax liability. To ensure accurate withholding, new parents should use the IRS Withholding Estimator. Parents can adjust the amount of tax withheld from their paycheck by providing an updated Form W-4, Employee’s Withholding Certificate, to their employer.
Explore Eligibility for Tax Credits and Deductions: Several tax credits and deductions can benefit new parents.
Here are some key tax tips to consider:
- Child Tax Credit-Parents who claim their child as a dependent on their tax return may be eligible for the Child Tax Credit.
- Child and Dependent Care Credit – If parents paid for someone to care for their child or household member while they worked, they might qualify for the credit regardless of income, allowing parents to claim up to 35% of daycare expenses, subject to certain limits.
- Adoption Tax Credit – Families involved in the adoption process can claim eligible adoption expenses for each qualifying child. Whether it’s an international, domestic, private, or public foster care adoption, the Adoption Tax Credit provides financial relief during this significant life event.
- Earned Income Tax Credit – Designed to support low- to moderate-income families, it offers a valuable tax break. Eligible parents can reduce their tax liability and potentially increase their tax refund through this credit.
- Credit for Other Dependents – Parents with dependents who do not qualify for the Child Tax Credit can still claim the Credit for Other Dependents. This credit can be used in addition to the Child and Dependent Care Credit and the Earned Income Credit.
In conclusion, raising children is a rewarding but expensive journey. Thankfully, the tax code provides numerous opportunities for new parents to ease the financial burden.
By obtaining the necessary identification numbers, reviewing withholding, and exploring the available tax credits and deductions, parents can maximize their savings and make the most of their new family’s tax situation.
Consequently, meeting with a tax professional like Jeffrey Schneider, EA, CTRS, ACT-E, who can offer you individual assistance on your tax situation, is imperative.
Above all, begin planning today and secure a brighter financial future for your ever-growing family.